If You Really Want Something to Worry About: China Needs A Recession
OK, so we’re not having much fun at the moment with the Euro, Greece, the eurozone and all that. The US isn’t having a great time of it either. However, they’re rather trivia as compared to what might be happening in China.
They’ve been having 10% 0r so growth for the past three decades: that’s 10% per year mind you. So the economy is about 17 times larger than it was when I were a lad at university: something of a change really.
However, there’s a general rule of thumb that a booming economy covers up a multitude of sins. Hey, so what you made a mistake? The growth is so fast that it’ll come right anyway. It’s only in recessions that you see, as Warren Buffett says “who’s been skinny dipping” rather than wearing trunks. When growth is high or the tide is in you can’t tell.
There’s also another set of economic theories, usually known as “Austrian” that says, roughly, that in every boom there are those swimming without their trunks. And you need to occasional recession to uncover them, get rid of them, purge them from the economy.
Which is where it gets worrying about the Chinese economy. 30 years of the most frantic economic boom the world has ever known and, well, what will get uncovered as and when it slows down?
As and when it does it will take commodity prices with it: iron, copper, cement, they’re all booming because of Chinese building demand. Those collapsing will kill the Australian economy which relies so much on that Chinese demand.
And….well, no, I don’t know what then. Not shotguns and baked beans in the basement, no, but even if we solved the euro crisis it really just ain’t all over yet.
The Fat Lady is China and it won’t be over until we know what her song is.